On March 12, 2019, the issue of whether the Consumer Financial Protection Bureau’s (CFPB) leadership structure violates Article II and the separation of powers established by the United States Constitution was argued before the U.S. Court of Appeals for the Fifth Circuit in CFPB v. All American Check Cashing, Inc, et al., No. 18-60302.
In May 2016, the CFPB sued All American Check Cashing, Inc. for various violations of the Consumer Financial Protection Act (CFPA) relating to All American’s check cashing services and payday lending business. The CFPB alleged All American had engaged in abusive, deceptive, and unfair acts and practices. All American moved for judgment on the pleadings, arguing the unconstitutional structure of the agency rendered this enforcement action void. On March 21, 2018, the Southern District of Mississippi denied All American’s motion, finding the agency’s structure to be constitutional. No. 3:16-cv-356-WHB-JCG. In denying the motion, the court cited PHH Corp. v. CFPB, a recent D.C. Circuit opinion. PHH rejected the argument that the CFPB is unconstitutional based on its single-director structure. The D.C. Circuit stated “Congress’s decision to provide the CFPB Director a degree of insulation reflects its permissible judgment that civil regulation of consumer financial protection should be kept one step removed from political winds and presidential will.” PHH Corp. v. CFPB, 881 F.3d 75, 84 (DC Cir. 2018).
In this interlocutory appeal, All American seeks a ruling that strikes down the CFPA, rather than only severing its for-cause removal clause. At oral argument and in its briefs, All American and the other appellants make two main points. They argue that the statutory structure of the CFPB is unconstitutional and they argue that because it is unconstitutional, the enforcement action is invalid as the agency lacks the authority to bring such action against them.
The leadership structure of the CFPB consists of a single director with a fixed five year term, who can only be removed by the President for cause for “inefficiency, neglect of duty, or malfeasance in office.” 12 U.S.C. 5491(c)(3). All American argues that this removal provision in combination with other features, such as its single-Director leadership structure, vast executive authority, its funding being outside of the normal appropriations process, and the lack of a bipartisan leadership composition requirement, makes the director of the CFPB too insulated from the executive branch and forces the President into a position where he is only a “frustrated bystander.” All American argues this leadership structure fundamentally impedes the President’s ability to carry out his Article II responsibilities of ensuring that laws are being faithfully executed.
The CFPB, in its opposition brief, relies on Supreme Court precedent in arguing that the leadership structure is constitutional and points out that there are various independent agencies in which their leaders are removable only “for cause.” They also argue that if the court were to find the structure unconstitutional, the CFPB ratified the complaint against All American. This ratification, they allege, cured any defects from structural constitutional violations that may have existed. Further, the CFPB contends that if the leadership structure is unconstitutional, severance of the removal provision is sufficient. All American disagrees, arguing that only striking the “for cause” removal provision would essentially change the agency into one that Congress did not intend.
The three judge panel focused the parties’ oral argument on Supreme Court precedent, with no clear indication as to the direction the panel was leaning. LenderLaw Watch will provide an update once a decision is rendered.